British accused on Enron 'looting'

THREE high-rolling British investment bankers were today accused of participating in 'the deliberate looting of Enron assets'. The allegation came in a $517m (£344.5m) lawsuit filed by Rabobank.

The Dutch bank, which is facing massive Enron-related losses, is suing Royal Bank of Canada, which employed the trio - Gary Mulgrew, Giles Darby and David Bermingham - until last November. RBC strenuously denies the claims.

When working for investment banking boutique Greenwich NatWest in the 1990s they allegedly helped Enron executives set up one of the off-balance-sheet vehicles Enron later used to hide multi-million-dollar losses. Later they joined RBC which, the lawsuit claims, effectively passed on a $517m loan exposure to Enron through a so-called 'total return swap' with Rabobank. In effect this gave the Dutch bank the liability in the event of Enron defaulting.

Rabobank, which filed suit against RBC in New York State court last Friday, said the trio knew about Enron's fragility because of their previous work for the group while at Greenwich NatWest. 'Their knowledge of Enron's internal corruption from their days at NatWest is a crucial aspect of the case,' Rabobank said, accusing them of 'enticing' Rabobank into signing up for the transaction. The threesome had earlier been 'intimately involved' in setting up one of the off-balance-sheet vehicles.

The alleged Enron scam, while insider driven, was not completely an inside job, Rabobank alleged. 'It required the assistance and even participation of a select few outsiders, who not surprisingly were themselves rewarded for their aid.' Greenwich NatWest was 'actively involved in the development of the financial manipulations', it said. Bermingham, Mulgrew and Darby managed Greenwich's participation in the off-balance-sheet vehicle LJM1. They 'oversaw the eventual profit flow back to NatWest for having colluded in these corrupt arrangements,' it alleged.

RBC emphatically denied any wrongdoing and described the claim as without merit. 'It consists of nothing more than innuendo and baseless speculation that inaccurately attempts to portray Rabobank, a large sophisticated international bank...as an unwitting victim of circumstance,' a spokesman said.

What the writ says

• '...key operatives in RBC's structured finance operations...had, for a prior employer, themselves participated in the creation of these corrupt insider transactions.'

• 'RBC did not disclose to Rabobank any of the facts it has concerning Enron's true financial condition, including that Enron's management was corrupt, that Enron's management was looting Enron for personal benefit and that Enron's reported results were a house of cards waiting to collapse.'

• 'Mulgrew, Bermingham and Darby...knew that Enron was prepared to and did engage in sham transactions to facilitate financial statement fraud. Second, they knew that Enron's senior management lacked integrity and that its finances were managed by a charlatan who was engaged in looting corporate assets for his own personal enrichment.'

• 'The participation of these three...was grossly morally reprehensible, and involved such wanton dishonesty as to imply a criminal indifference to civil obligations.'